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Author: doctorG Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75804  
Subject: to 403b or not to 403b? Date: 10/13/1998 9:58 PM
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I have a couple of questions about retirement planning, apologizing on the front end for any blatant naivete (I'm new to investing and Fooldom).

I'm changing jobs in Jan., from teaching at a university to one in the private sector. While I'll be effectively doubling my salary (who said teaching is a valued profession?), the 403b at the new institution does not provide any matching funds. While the Foolish approach would appear to provide a rate of return superior outside a tax-deferred vehicle (according to steps 3 & 4 of the retirement tutorial), I'm a bit worried about leaving the womb of taxlessness. Ergo, I've got a couple of questions:

1. Has anyone bailed on thier 401k's or 403b's, and how would you rate the transition, and

2. A question of logistics: since I will be funneling a certain amount of cash for month into retirement, if I were to adopt the Full on Foolish approach (Dow Dividend, small caps, etc.) should I put that money in to a holding pattern, like a money market account, and acquire the securities every 6 mos. to avoid outrageous friction costs, or is it better to suffer the slings and arrows of outrageous commission fees? (Hm. That was quite the run-on sentence.)

3. would a hybrid plan, such as dividing funds between the 403b, IRA, and taxable securities, or is that just being a sissy?

Again, if this information is readily gotten elsewhere, I apologize for needlessly using bandwidth here. Any insight or direction would be gratefully appreciated.

DoctorG.
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Author: Tiddman Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6003 of 75804
Subject: Re: to 403b or not to 403b? Date: 10/14/1998 8:45 AM
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You might want to see my rants about 401(k) programs in msgs #5775 and #5776 of this folder.

> 1. Has anyone bailed on thier 401k's or 403b's, and
> how would you rate the transition

I have never done this but some friends of mine have, and I've always considered it a huge mistake. The 401(k) is the best way to set aside a significant amount of pre-tax money for retirement. I think the biggest problem people have is that they are limited in their choices of investment vehicles. However most 401(k) programs at least have index funds which have performed well historically. Yes you can probably find better vehicles (Foolish Four, a good stock pick, etc) but it would be very hard to get ahead of the tax breaks you get in the 401(k).

If you have a 401(k) or 403(b) account right now, what you might do is roll that into a self-directed Roth IRA account so you can invest that as you wish, and start a new 401(k) or 403(b) account with your new employer.

>2. A question of logistics: since I will be funneling
> a certain amount of cash for month into
> retirement, if I were to adopt the Full on Foolish
> approach (Dow Dividend, small caps, etc.) should
> I put that money in to a holding pattern, like a
> money market account, and acquire the securities
> every 6 mos. to avoid outrageous friction costs

I think what you're asking is how to incrementally invest money over a long period of time. I have been struggling with the same thing. I have never used the Foolish Four approach for exactly this reason -- I did not start with a chunk of cash to invest, rather I add to it every month.

I have been using DRIP plans and no-load mutual funds with low minimum contributions. I always set them up to withdraw automatically from my checking account so they are off and running. For instance I contribute to a no-load mutual fund (which has outperformed the market annualized for the past 10 years) on the 5th and 20th of every month. Most DRIP plans offer similar programs. It seems like a sound strategy would be to pick 2-5 good stocks (either the Foolish Four or just good long-term stocks) and add money to them automatically every month.

My broker (AmeriTrade) also offers automatic deposit so I contribute to that every month. Over time the cash builds up enough for me to make a buy. At $8 per trade, it doesn't take a lot of cash. I try to keep the commissions down to 0.5% or less of my trade amount so I make a purchse when I'm up to around $1,000-1,500.

Tiddman


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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6005 of 75804
Subject: Re: to 403b or not to 403b? Date: 10/14/1998 10:22 AM
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doctorG - Offering you advise without more details about your circumstances may be risky, but normally I would encourage you to (1) Fully fund a Roth/IRA, (2) Use the 403b vehicle to the fullest extent you need to both save for retirement & lower current income, (3) Invest in taxable vehicles to have liquid assets. Important factors to consider: your age, ages of your dependents (college-bound?), retirement funds accumulated to date, other short/mid range financial goals, and other assets & liabilities among them. You might benefit by an in-depth analysis of these items, either self-completed or with a planner. PP

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Author: mcadoo11 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6006 of 75804
Subject: Re: to 403b or not to 403b? Date: 10/14/1998 11:10 AM
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doctorG, you wrote:
"...the 403b at the new institution does not provide any matching funds. While the Foolish approach would appear to provide a rate of return superior outside a tax-deferred vehicle (according to steps 3 & 4 of the retirement tutorial), I'm a bit worried about leaving the womb of taxlessness. Ergo, I've got a couple of questions:

1. Has anyone bailed on thier 401k's or 403b's, and how would you rate the transition...."


My reply:
I have recently bailed out of my 403(b) for the remainder of the year and will be putting money instead in a self-directed IRA (the $2000 that you can put in it annually). I did this because my employer has only six mutual fund options in its plan and all have performed poorly historically and this year (over the last 4 years, the six funds have performed below the S&P 500 index by over 9% around half the time). That is horrible and has resulted in our 403(b) returns lagging the S&P by 42% during the last 4 years. It clearly is in my interest to bail out of the 403(b) at this point.

Unfortunately, we do not have an index fund option in our 403(b) plan at work and several of us are working hard to change that, but it is not easy. I am sure that would be almost impossible in a university setting.

As a result, you really need to know what the options are in your plan and run the numbers for yourself. I would refer you to Robert Sheard's points on poor performing 401(k) options. As he notes, "...it may not be in your best interest to continue contributing to the plan." Or, in your case...begin contributing to the plan.

His article is at --

http://www.fool.com/DDow/1998/DDow980819.htm

You ask:
"...if I were to adopt the Full on Foolish approach (Dow Dividend, small caps, etc.) should I put that money in to a holding pattern, like a money market account, and acquire the securities every 6 mos. to avoid outrageous friction costs, or is it better to suffer the slings and arrows of outrageous commission fees?"


My reply:
I am putting my money in my self-directed IRA in a no-load, low fee index fund. When it has gained enough (approximately $2000), I will either make another Cash-King purchase (I am currently watching CSCO, SGP and KO) or up my ante in the RP method (see the Foolish 4 message boards).

You ask:
"...would a hybrid plan, such as dividing funds between the 403b, IRA, and taxable securities, or is that just being a sissy?"


My reply:
That is exactly what I am doing dammit! ;-) I will continue to contribute to my 403(b) in the future up to that point when they stop contributing and continue to try and get some changes made to the plan. I also have my self-directed IRA (my fun Motley Fool dollars that are up 10%+ this year compared to the 17% loss my 403(b) has experienced).

And finally, my children hold the taxable securities as part of their college fund. By the way, can you figure a way to make that experience a little cheaper for those of us trying to save and pay for it 15 or so years down the line?!

mcadoo11

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6048 of 75804
Subject: Re: to 403b or not to 403b? Date: 10/16/1998 2:21 PM
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Tiddman, in a well-written response to a query from DoctorG, wrote in part:

You might want to see my rants about 401(k) programs in msgs #5775 and #5776 of this folder.

> 1. Has anyone bailed on thier 401k's or 403b's, and
> how would you rate the transition

I have never done this but some friends of mine have, and I've always considered it a huge mistake. The 401(k) is the best way to set aside a significant amount of pre-tax money for retirement. I think the biggest problem people have is that they are limited in their choices of investment vehicles. However most 401(k) programs at least have index funds which have performed well historically. Yes you can probably find better vehicles (Foolish Four, a good stock pick, etc) but it would be very hard to get ahead of the tax breaks you get in the 401(k).

If you have a 401(k) or 403(b) account right now, what you might do is roll that into a self-directed Roth IRA account so you can invest that as you wish, and start a new 401(k) or 403(b) account with your new employer.


I'll quibble with two points. First, less than half of defined contribution plans (e.g., 401k and 403b plans) offer an index fund as an investment option. Thus, saying most do so is in error. Second, no qualified plan money may be rolled from that plan into a Roth IRA. The law specifies that rollovers to a Roth IRA may be made only from another Roth IRA or from a traditional IRA. Therefore, before the plan money can reach a Roth IRA it must first make a stop in a traditional IRA.

Other than that, I thought the reply was well-reasoned..

Regards….Pixy


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